Challenge to Gold Project Status Not 'Significant Risk,' Analyst Says

Source: Michael Siperco 11/27/2024

A challenge of Seabridge Gold Inc.’s (SEA:TSX; SA:NYSE.MKT) “Substantially Started” (SS) status for its KSM project in British Columbia is not “a significant risk to the project or the designation,” RBC Capital Markets Analyst Michael Siperco writes. The company continues to look for a possible partner for its massive Golden Triangle project.

A challenge of Seabridge Gold Inc.’s (SEA:TSX; SA:NYSE.MKT) “Substantially Started” (SS) status for its KSM project in British Columbia is not “a significant risk to the project or the designation,” RBC Capital Markets Analyst Michael Siperco wrote in an updated research note on November 25.

Seabridge has announced that the Tsetsaut Skii km Lax Ha (TSKLH) indigenous group has filed a petition in the British Columbia Supreme Court against seeking judicial review of the recently announced SS designation for KSM.

SS is a designation assigned by provincial regulators that extends key environmental approvals over the life of the project (more than 33 years in the latest PFS), noted Siperco, who rated the stock Outperform, Speculative Risk and set a target price of US$30 per share.

‘A High Degree of Confidence’

TSKLH claims that the province failed to appropriately consult it in the process of awarding the designation, and seeks to quash the determination on that basis, he wrote. The process for deciding on a petition could take a year more, “during which time the status of the project is unaffected.”

“We have a high degree of confidence that Seabridge and KSM have satisfied the requirements for the substantially started designation, and that even if this dispute between the province and this particular indigenous group results in a restart of that process, KSM should again receive the designation on the same basis, with the support of the three largest indigenous groups affected by the project (The Nisg a’a Lisims Government, the Tahltan Central Government, and the Gitxsan Hereditary Chiefs),” Siperco wrote.

“That said, even though the project is unaffected while this petition is litigated, the process could be a near term stock overhang and potentially impact the ongoing process seeking a partner for KSM,” Siperco continued.

Finding Partner a Catalyst

RBC believes finding a partner to develop KSM remains a key catalyst for Seabridge, Siperco said.

“Management is seeking a senior producer that could provide funding through feasibility and a construction decision, with an option to acquire control,” Siperco wrote. “A partner with the capability and balance sheet to advance the project to feasibility and a construction decision could, in our view, validate the project, the latest updated studies, and the work done to date at site, while providing a path for Seabridge investors to participate in future potential upside if a positive construction decision is made.”

The firm’s rating is based on the assumption that a partner is found and “a feasibility study will further confirm the economic potential at KSM,” the analyst continued.

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2. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Seabridge Gold Inc.
3. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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Disclosures for RBC Capital Markets, Seabridge Gold Inc. November 25:

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Equity valuation and risks: For valuation methods used to determine, and risks that may impede achievement of, price targets for covered companies, please see the most recent company-specific research report at www.rbcinsightresearch.com or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.

Seabridge Gold Inc. Valuation: Our US$30.00 price target is based on an average 0.50x target multiple applied to our NAV8% estimate (RBC price deck, $2,000/oz Au, $4.00/lb Cu LT), a discount to covered developer peers, reflecting the stage of the project, potential partnership, longer-dated potential upside from unmodeled resources / projects and construction costs/complexity. Our price target supports our Outperform rating on the stock, and the Speculative Risk qualifier reflects the early-stage nature of the project and construction risk ahead.

Risks to rating and price target

• Partnership risk: Our target and recommendation largely depend on Seabridge finding first a partner to advance and fund a feasibility study, and then to assume operatorship of the project through construction and production. If a suitable partner is not found, or partnership terms differ from our assumptions, we see risk to our valuation and potential for material delays in advancement.

• Gold price: The project is most sensitive to the prevailing price of gold (and to a lesser extent, copper), outperforming in rising markets and underperforming when falling.

• Construction capex: Whether $6.4bn as outlined in the 2022 PFS, or our $7.3bn estimate on a smaller-scale initial project, KSM is highly sensitive to start-up capital.

• Remoteness and climate: While the paved highway, port, and airstrip provide access to the project, KSM is still a relatively remote project. Weather conditions will present challenges during construction and mine operations.

• Permitting: Environmental approvals are in place; however, significant additional permitting will need to take place prior to production.

• Project financing: Funding options for Seabridge/KSM will ultimately depend on the potential partnership agreement, development plan, revised capex figures, and future market conditions (including metal prices).

• Project opposition: KSM has seen past criticism from local groups and non-government organizations, primarily related to the impact on waters, rivers, and salmon spawning grounds.

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